6 Microfiche, 536 pages
A. Field of the Invention
This invention concerns an electrical computer and a data processing system, and methods involving the same, applied in the financial field of workers"" compensation. More particularly, the data processing system supports a new financial product generally characterized as the coordinated separation of workers"" compensation benefits and employers liability insurance from their previously combined form known as a standard workers"" compensation policy.
B. Organization of This Document
This document is organized as set forth in the following outline table of contents below.
I. BACKGROUND OF THE INVENTION
A. Field of the Invention
B. Organization of This Document
II. DESCRIPTION OF THE RELATED ART
A. Overview
B. Basic Nature of Workers"" Compensation
C. Different Approaches Used by Different States
1. State Funds
a. Monopolistic State Fund
b. Competitive State Fund
2. Standard Workers"" Compensation Policy
i. NCCI Role in the Standard Workers"" Compensation Market
ii. Analysis of a Standard Workers"" Compensation Policy
iii. Workers"" Compensation Assigned Risk Plans Under a Standard Workers"" Compensation Policy
iv. Disadvantages of a Standard Workers"" Compensation Policy
3. Self-Insurance
a. Group Self-Insurance
b. Individual Self-Insurance
4. Twenty-Four Hour Coverage
5. ERISA
D. Summary of the Prior Art
III. SUMMARY OF THE INVENTION
A. An Innovative Financial Product
B. A Computerized Rating System
IV. SUMMARY OF THE DRAWINGS
V. DETAILED DESCRIPTION OF A PREFERRED EMBODIMENT OF THE INVENTION AND ITS BEST MODE
VI. CLAIMS
Figures or drawings are also a part of this document.
A reason for the great detail in this document is that, in order to truly understand the invention of the data processing system and methods, and the significance of the invention, one must understand the financial product supported by the invention.
A. Overview
Workers"" compensation is defined by statutory provisions concerning the relation of master and servant in providing compensation for occupational accidents. But the present statutes are but an evolution of an employers liability principle of law. See, for example, Cyclopedia of Insurance Law by George J. Couch, LL.B, published by The Lawyers Co-Operative Publishing Company, Rochester, N.Y. 1929.
In contrast, employers liability insurance, which appears to have been first undertaken in England and which apparently was recognized in America until about 1887, is a contract. Under an employers liability insurance contract, a consideration, or a premium (which is usually based upon or bears a direct ratio to the gross amount of wages paid by the insured), is paid for a specified term to insure an employer against liability for damages on account of bodily injuries, fatal or nonfatal, accidentally suffered by an employee. Under this kind of insurance, the insurer agrees to indemnify the employer for the loss or damage actually sustained by reason of the employers liability to an employee for such an injury or death. See Cyclopedia of Insurance Law. 
Before workers"" compensation laws were enacted, an injured employee pursued his or her case in court under the common law of employers liability, which is derived from the common law of negligence or tort liability. Implicit in this approach was the basic assumption that occupational injuries were always the result of someone""s fault, and that the person at fault should bear the costs. One responsibility of the court, therefore, was to ascertain who had been at fault. If the employer alone was responsible for the accident, then the employer was liable for the payment of all resulting damages to the injured worker. On the other hand, if the worker was at fault, he or she lost some, if not all, of the claim upon the employer (or upon society) for financial indemnity and medical care.
The burden of proof for employer""s negligence fell upon the worker, a burden often difficult, if not impossible to satisfy. Fellow workers were reluctant to testify against an employer for fear of losing their jobs, and the employer had only to defend successfully against the accusation of negligence. The employer could always fall back on the defenses of contributory negligence, the fellow-servant doctrine, and assumption of risk. As a result, injured workers often failed to bring suit, for when they did, the odds were heavily against their success in an otherwise costly venture. Furthermore, only the injured worker himself had any legal claims. If he died, the survivors and dependents had no basis for legal action.
Statutory efforts known as xe2x80x9cemployers liability lawsxe2x80x9d were made to diminish or remove some of the employers common-law defenses so that the injured worker would stand a better chance in court. This legislation could be classified in three categories: (1) statutes denying the right of employers and workers to sign contracts relieving the employer of liability for accidents as a condition of employment, and twenty-seven states had legislated against such practice by 1908; (2) statues extending the right of suit in death cases, and by 1904, 41 jurisdictions had such statutes; and (3) statutes abrogating or modifying the common-law defenses. But by the end of the nineteenth century, a coincidence of increasing industrial injuries and decreasing remedies had produced in the United States a situation ripe for radical change. Thus, when a full account of a German system for compensating injured employees, written in 1893 by John Graham Brooks, was published as the Fourth Special Report of the Commissioner of Labor, legislators all over the country seized upon it as a cue to the direction which efforts at reform might take. Workers"" Compensation Law: Cases, Materials and Text, by Arthur Larson, published in 1984 by Mathew Bender, New York, N.Y. For example, the Federal Employers Liability Act, adopted in 1908 and applicable to railway employees engaged in interstate commerce, amounted to a codification of statutory improvements up to that time and was an important step forward.
In Chicago in 1910, a conference was attended by representatives of the commissions of the legislatures of Massachusetts, Minnesota, New Jersey, Connecticut, Ohio, Illinois, Wisconsin, Montana, and Washington. And at that conference, a Uniform Workers"" Compensation Law as drafted. Although the state acts which followed were anything but uniform, the discussions at this conference did much to set the fundamental pattern of legislation. See Workmen""s Compensationxe2x80x94Prevention, Insurance and Rehabilitation of Occupational Disability, by Herman Miles Somers, Anne Ramsey Somers, published by John Wiley and Sons, Inc., New York, and Chapman and Hall, Limited, London.
As to actual enactments, the first New York act was passed in 1910. The act had compulsory coverage of certain xe2x80x9chazardous employments.xe2x80x9d However, the act was held unconstitutional in 1911 by a Court of Appeals, on the ground that the imposition of liability without fault upon the employer was without due process of law under the state and federal constitutions.
Eventually, the law came to recognize an important legislative agreement, and a compromise between employers and workers provided the framework for workers"" compensation laws in the United States. Employers agreed to pay benefits to all workers who became disabled or died as the result of an injury that arose out of, and in the course of, employment. Workers agreed to accept workers"" compensation as the exclusive remedy against their employers.
For employers, workers"" compensation offers immunity from tort suits associated with work-related injuries. Financial obligations are limited, within reasonable bounds, to income lost by injured workers and the cost of medical and rehabilitation care. Costs are reasonably predictable and are generally spread equitably among similarly situated employers and insurance-product customers. This encourages employers to engage in safety and loss prevention activities to limit their compensation costs.
Workers, in turn, are guaranteed protection from the economic loss and the financial burdens of medical and rehabilitation care that frequently accompany injury. For them, workers"" compensation provides a convenient, minimally adversarial, and speedy benefit delivery mechanism. No longer do the vagaries of tort law apply to workers whose ability to work is impaired or terminated as a result of an employment-related injury. Contributory negligence, assumption of risk, and fellow employee doctrines of fault have no effect on a worker""s ability to recover under workers"" compensation. This protection generally extends to all covered workers solely because of the existence of an employer/employee relationship. The U.S. Supreme Court observed in Cudahay Packaging Co. v. Parramore, 263 U.S. 418 (1924) that: xe2x80x9cThis liability is based, not upon any act or omission by the employer, but upon the existence of the relationship which the employee bears to the employment because of and in the course of which he has been injured.xe2x80x9d See generally, The Constitutionality of Compulsory Workmen""s Compensation Acts, by Samuel B. Horovitz and Josephine H. Klein, reprinted from Proceedings, International Association of Industrial Accident Boards and Commissions, Twenty-fifth Annual Convention, Charleston, W. Va., Sep. 26-29, 1938. Bulletin No. 26 United States Department of Labor, Division of Labor Standards.
Presently, the constitutionality of compensation acts in various states is clearly and firmly established. However, in the evolution of court decisions to achieve constitutionality of the workers"" compensation scheme, there evolved a lack of uniformity of coverage in the United States. Some states limit their acts to hazardous industries only and omit all others; many omit farm laborers and domestic servants; others make it compulsory as to all public employment, and elective as to private employments. See Issues in Insurancesxe2x80x94Volume Ixe2x80x94Everett Randall.
B. Basic Nature of Workers"" Compensation
Workers"" compensation provides cash benefits and medical care to victims of work-connected injuries. There is a workers"" compensation act in each of the 50 states; no two are exactly alike, but many of the basic features of these acts are similar, as outlined in this section.
The first aspect of the workers"" compensation program which should be noted is that not all injuries which occur to an employee at his or her place of work will lead to workers"" compensation benefits. The normal requisite for compensation is that the employee must suffer a xe2x80x9cpersonal injury by accident arising out of and in the course of employment.xe2x80x9d The impact of the requirement is to exclude from the scope of the program a variety of injuries, such as a wound obtained in a scuffle among fellow employees, which was obviously triggered by a nonwork-connected dispute.
One feature that distinguishes workers"" compensation from most other legal systems that provide recompense to individuals for damages which have occurred to them is not, however, that some injuries are excluded from the coverage of the act, but that many injuries are eligible for benefits which would not meet the normal legal tests for damages. This broadened eligibility primarily occurs because an injured worker can recover benefits from his or her employer even if he or she was guilty of contributory negligence and the employer was free of negligence or other fault which might have caused the injury.
The workers"" compensation acts require that the employer furnish employees with medical care for work-connected injuries, although in some cases, there may be limits on the amount of medical care that the employer must provide for any particular employee. If the worker is fatally injured, the employer is required to provide burial expenses. There are also cash benefits for injured employees, which are normally divided into the categories of temporary total, permanent total, permanent partial, and death benefits. Temporary total benefits are paid to a worker if he or she is disabled for a duration longer than a time period specified in the workers"" compensation act of issues, but is able subsequently to return to work without permanent impairment. Permanent total benefits are paid to the worker who can never return to work. Permanent partial benefits are paid if the worker is eventually able to return to work, but only after a member of his body has either been amputated or has partially or completely lost its usefulness.
The benefits that the worker receives for these types of injuries have several dimensions. An attempt is normally made to replace some portion of lost wages, usually around one-half to two-thirds of the previous earnings, subject to minimum and maximum weekly benefits. It is also common to indemnify the worker for the loss of some bodily member even if this does not result in the loss of wages. The normal procedure is to have a schedule of the number of weeks"" benefits due for the loss of any particular part of the body. In addition to benefits which seek to replace wage loss and indemnify the loss of bodily members, normally there are also benefits which seek to compensate any dependents for the loss of support suffered because of the injury to the worker. This mode of benefits is most commonly expressed in a pension for the dependents of a fatally injured victim of an employment accident, but often the same mode can be seen in the benefit schemes for temporary total and permanent total injuries, where the normal benefits are supplemented if the worker has dependents.
Most states not only prescribe the nature of the injuries that are to be compensated and the size of the benefits, but also administer the program. There is usually an administrative agency which supervises the handling of the injured workers"" cases and adjudicates any dispute concerning the eligibility for benefits and the extent of the injuries. Normally, the state""s judicial system becomes involved in the law of workers"" compensation only when a decision of the workers"" compensation agency is appealed. Many states also provide vocational or medical rehabilitation services for injured workers, but this is not technically a part of the workers"" compensation system.
Despite the involvement of the states in certain aspects of the workers"" compensation program, it nonetheless remains a system which is basically privately run. The workers"" compensation statute indicates that each employer shall compensate injured workers by a certain formula of benefits, but the decision of how these benefits are to be provided is usually a decision for the employer. See generally, Interstate Variations in Employers"" Costs of Workmens"" Compensation, Effect on Plat Location Exemplified in Michigan by John F. Burton, Jr. (A Study of the Institute of Labor and Industrial Relationsxe2x80x94The University of Michiganxe2x80x94Wayne State University), published by the W. E. Upjohn Institute for Employment Research.
C. Different Approaches Used by Different States
With each state passing its own workers"" compensation scheme, different approaches were created to allow employers to meet statutory obligations to provide workers"" compensation. Most states passed a compulsory compensation law; a compulsory compensation law requires every employer to accept the act and pay the compensation as specified. In contrast, New Jersey, South Carolina, and Texas provide for an xe2x80x9celective act,xe2x80x9d whereby the employer has the option to accept or reject the act, but if the employer rejects the act, the employer will be precluded from raising the common-law defenses of assumption of risk, negligence of fellow servants, and contributory negligence.
With regard to insuring against an employers workers"" compensation obligation, there are five basic methods: (1) state funds; (2) a standard workers"" compensation insurance policy; (3) self-insurance; (4) Twenty-Four Hour Coverage insurance policies and (5) ERISA plans.
1. State Funds
A monopolistic state fund basically requires the employer to buy workers"" compensation coverage from the state. For example, the State of Nevada allows individual self-insurance but has a required state fund. The states of Ohio, Washington, and West Virginia permit self-insurance, but have a required state fund. The states of North Dakota and Wyoming do not permit self-insurance and have a required state fund. See 1991 Analysis of Workers"" Compensation Laws, prepared and published by the U.S. Chamber of Commerce.
In summary, four of the six state fund states allow eligible employers to self-insure or to use the state fund only. North Dakota and Wyoming allow the employer to be insured for the workers"" compensation obligation only through the state fund. No other alternatives are accepted. Thus, a standard workers"" compensation policy is not available to be sold in the above states.
Sixteen states appear to presently offer insurance coverage for workers"" compensation through a state fund that competes with the private market. Some of the states included are Arizona, California, Colorado, Idaho, Maryland, Michigan, Minnesota, Montana, New York, Oklahoma, Oregon, Pennsylvania, and Utah. While the monopolistic state fund approach, with the few exceptions noted above, is the only method of securing compensation, those states with a competitive state fund allow the employer the choice to seek workers"" compensation coverage through either the state fund or the private insurance marketplace. In October 1991, Louisiana passed a state consitutional amendment allowing it to have a competitive state fund.
The breakdown in each of these states as to what that private insurance marketplace consists of is as follows. Arizona, Michigan, New York, Oklahoma, and Oregon allow individual and group self-insurance and the sale of a standard workers"" compensation policy; Maryland permits individual and group self-insurance but group self-insurance is limited to counties, municipalities, and certain private employers, and it also allows the sale of a standard workers"" compensation policy; Minnesota permits individual and group self-insurance and allows public corporations and state agencies to establish individual or group self-insurance funds, and it also allows the sale of a standard workers"" compensation policy; California, Idaho, Pennsylvania, and Utah permit self-insurance and the sale of a standard workers"" compensation policy. 1991 Analysis of Workers"" Compensation Laws, prepared and published by the U.S. Chamber of Commerce.
2. The Standard Workers"" Compensation Policy
The standard workers"" compensation policy, which can be issued in 44 states (those without a state fund), is a way by which an insurance company insures the employer against its workers"" compensation obligation and its employers liability obligation. That is, the standard workers"" compensation policy has two parts. Part A covers workers"" compensation, while part B covers employer liability: It is a single insurance policy. See Louisiana Workers"" Compensation Review, prepared by Independent Insurance Agents of Louisiana.
In 1942, the Section of Insurance Law of the American Bar Association created a committee on workers"" compensation and employers liability insurance law and put forth the xe2x80x9cStandard Workers"" Compensation and Employers Liability Policy.xe2x80x9d It is important to note that the standard workers"" compensation policy combined both policies such that the standard policy is one policy of insurance. The foreword to that publication states xe2x80x9cThe Standard Workmans Compensation and Employers Liability Policy is dual in its purpose. It affords the insured (A) protection against liability under workers"" compensation laws, and (B) protection against liability imposed by law for damages in cases where the Compensation Act does not apply.xe2x80x9d Policy Annotations from the Conference Commentary of the American Bar Association, Insurance Committee.
Traditionally, standard workers"" compensation policies have been issued by xe2x80x9cP and Cxe2x80x9d carriers. A xe2x80x9cP and Cxe2x80x9d carrier, in the industry, is a property and casualty insurance company. That company is known as a property and casualty company because its state-issued xe2x80x9ccertificate of authorityxe2x80x9d allows it to write lines of insurance covering property and lines of insurance covering casualty.
According to each state law, a charter may allow the insurance carrier to write many or different lines of insurance business. Each state has a workers"" compensation law, but the laws are not identical. For example, Arkansas law provides that under Section 11-9-102 (15) xe2x80x9cCarrierxe2x80x94means any stock company, mutual company, or reciprocal or inter-insurance exchange authorized (emphasis added) to write or carry on the business of workers"" compensation insurance in this state.xe2x80x9d But most states give the insurance commissioner of that state the power to authorize an insurance carrier, depending on its charter, a certificate to write workers"" compensation insurance. Many states have statutes which allow xe2x80x9calternative equivalentsxe2x80x9d (i.e., other arrangements of insurance to satisfy the workers"" compensation insurance requirements). However, at present, it is believed that many, if not all, states have allowed only standard workers"" compensation policies to be issued by property and casualty insurance carriers.
Early in the development of the enactment of workers"" compensation laws, there was a need for a body to coordinate insurance industry activities with the state governments and to provide a systematic determination of costs and a more uniform approach to workers"" compensation. In response to this need, the National Council on Compensation Insurance (xe2x80x9cNCCIxe2x80x9d) was founded as an organization of insurers (rather than rating bureaus) and became operational in 1923. At that time, it established prices for companies writing workers"" compensation insurance in 10 jurisdictions. Today the NCCI is the largest workers"" compensation insurance service organization in the United States; there are over 700 members or subscriber insurance companies and state funds utilizing the services of the NCCI. Each member carrier of the NCCI reports to the NCCI statistical information for the states in which the member carrier writes workers"" compensation insurance. Member carriers also adhere to form and rate filings and pay charges and assessments levied against NCCI. NCCI makes rates for 32 jurisdictions and provides technical and production assistance to local statistical organizations in 14 additional jurisdictions. NCCI presently also administers assigned risk plans in over 23 jurisdictions. With regard to pricing of a standard workers"" compensation policy (that single policy in which the first part covers workers"" compensation and the second part covers employers liability), the NCCI serves as the primary workers"" compensation pricing organization in most states.
It is important to note that there is a difference between being a member of NCCI and being a member of the National Re-insurance Pool. If an insurance company is a member of the latter, then the assessments and assignments are manded. Each state""s law varies regarding whether a carrier issuing a standard workers"" compensation policy must participate in this national Re-insurance Pool. For example, Louisiana law allows voluntary participation in the National Re-insurance Pool.
The uniform national system for rating occupations for workers"" compensation developed by the NCCI includes an assessment of the risk of liability and NCCI""s manual, which gives code numbers to specific occupational classifications. (There are presently approximately 700 classifications.) Insurers base their premium by multiplying the rate for a particular occupational classification by the respective payroll per $100 for all of the employers"" employees. Because a single employer may have employees which fit under different work classifications, calculating a premium for that employer includes multiplying a rate for each classification of the employer""s employees times the payroll for that classification to produce as many subtotals as may be needed for a given employer. These subtotals are then added together to reach the total premium dollar amount for that workers"" compensation and employers liability risk. In summary, the rates derived by the NCCI for the risk of workers"" compensation and employers liability results in one premium under one policy.
As previously stated, a standard workers"" compensation policy insures two concrages in the same policy. Part A insures or indemnifies the employer for all of the statutory workers"" compensation obligations which might otherwise be incurred from the suits by injured employees under the stat or states in which the employer does business. Part A covers practically all work-related injuries to employees, and liability is based on a xe2x80x9cno faultxe2x80x9d basis not on negligence. The workers"" compensation statutory remedy is the exclusive remedy or payment to the injured employee.
The standard workers"" compensation policy has a xe2x80x9cwe will payxe2x80x9d clause that states xe2x80x9cwe will pay promptly when due the benefits required of you by the workers"" compensation law.xe2x80x9d The standard workers"" compensation policy also has a xe2x80x9cconformity to satutexe2x80x9d clause (xe2x80x9cterms of this insurance that conflict with the workers"" compensation law are changed by this statement to conform to that lawxe2x80x9d), which in essence says that the insurance carrier will indemnify the employer for the remedies which the injured employees has against the employer for workers"" compensation under that particular state""s law.
The standard workers"" compensation policy, with its xe2x80x9cwe will payxe2x80x9d clause and xe2x80x9cconformity to statutexe2x80x9d clause, does not outline the benefits for the state where the policy is issued. Rather, it relies upon these clauses to conform to the benefits provided under that particular state""s workers"" compensation law.
Because a standard workers"" compensation carrier is a property and casualty insurance company, most states have enacted laws which provide that an admitted property and casualty insurance company is backed by a state""s Guaranty Association. A Guaranty Association, in the event of insolvency of the issuing insurance company, will pay the injured worker his or her workers"" compensation, medical, disability or other payments.
Workers"" compensation was the first compulsory insurance program adopted in the United States to be underwritten primarily by private insurers. But considerable agitation for state funds to provide the insurance accompanied the rising importance of workers"" compensation. Advocates of state funds argued that they were needed to ensure insurer solvency and fair pricing.
Several states established such funds, but the coverage continued to be written by private insurers. As some private insurers began to evaluate the risks over time, based on loss history data, companies began to reject workers"" compensation coverage for certain employers. When these employers were unable to obtain workers"" compensation coverage, they lobbied their state legislatures, maintaining that because their particular industry was vital to that state, the state should require those insurance companies to write workers"" compensation coverage or provide a method for them to get workers"" compensation coverage.
In 1929, Minnesota adopted what appears to be the first statute requiring the insurance companies to provide coverage for applicants they did not want to insure. It required the workers"" compensation rating bureau of Minnesota to assign a member company to provide coverage for any employer that had been refused coverage by three bureau members. It provided in part:
xe2x80x9cWhen any such rejected risk is called to its attention and it appears that said risks is in good faith entitled to coverage, said bureau shall fix the initial premium therefor, and upon its payment, such bureau shall designate a member whose duty it shall be to issue a policy containing the usual and customary provisions found in such policies therefor but for such undertaking all members of such bureau shall be reinsurers as among themselves in the amount which the compensation insurance written in this state during the preceding calendar year by such member bears to the total compensation insurance written in this state during the preceding calendar year by such member bears to the total compensation insurance written in this state during the preceding year by all the members of the said bureau.xe2x80x9d
Issues in Insurance
The pro rata sharing of the mandated exposures among insurers on the basis of their shares of the business in the state has become the model for most other residual market plans. By 1936, workers"" compensation assigned risk plans had been established in sixteen states and the District of Columbia. Most of them were xe2x80x9cvoluntary plans,xe2x80x9d i.e., not mandated by state law. At that time, a reinsurance program was available so that insurers could reinsure those exposures assigned to them. The reinsurance was not compulsory, but the exposures were fully reinsured if the assigned insurer elected to participate. Typically, the ceding company retained 30 percent of the premium and paid the balance to the reinsurance pool. The assigned insurer provided all services to the insured employer, including a loss adjustment service. Whenever the premiums were inadequate to cover the losses, the reinsurance pool then reimbursed the insurer for all losses incurred and assessments levied on participating companies.
Workers"" compensation assigned risk plans are now in operation in the District of Columbia and all states except California, Colorado, Idaho, Maryland, Montana, Nevada, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Utah, Washington, West Virginia, and Wyoming. In the excepted states, the state funds are required to accept all applicants, so assigned risk plans are not necessary.
Issues in Insurance
The workers"" compensation assigned risk plans now operate in a manner quite similar to automobile assigned risk plans. Approximately forty servicing insurers issue all of the policies and provide all services to the insured employers and their employers. All exposures written under the plans by these servicing insurers are reinsured by the approximately 400 participating insures in proportion to their voluntary business in the respective states.
As a majority rule in the average state, the following scenario resulted regarding the assigned risk pool. The workers"" compensation assigned risk plan was approved by that state""s insurance rating bureau, insurance department, or commission as the method to provide workers"" compensation insurance to an employer unable to obtain coverage in the voluntary market. The bureau, insurance department, or commission exercised regulatory power over the assigned risk plan, but selected the NCCI to administer the operation of the plan.
As mentioned earlier, the NCCI presently administers the assigned risk plan in over 23 jurisdictions. Insurance companies that belong to the NCCI joined as a member, subscriber, or service purchaser. By so joining, these companies designate that those states where they write workers"" compensation accept as filings, on behalf of the insurance company, the policy and endorsement forms prepared and issued by the NCCI as xe2x80x9cStandardxe2x80x9d forms. If an insurance company belongs to the NCCI, it has the option to participate in the workers"" compensation assigned risk plan.
Once an election to participate in the plan has been made, the company is then obligated to pay its pro-rata liability in the assigned risk plan for all states in which it writes workers"" compensation insurance on a voluntary basis. The insurance company is not allowed to choose particular states in which they wish to operate; the carriers have to write in all or none of the states in which they write voluntary compensation business.
In addition to actuarial considerations, the pricing of the standard workers"" compensation policy reflects many factors. One major factor has been the drying up of the voluntary workers"" compensation market due to those companies incurring bad loss ratios. Another factor is the drying up of the voluntary market due to the requirement of carriers being assessed by the NCCI and being forced to take assignments from the assigned risk pool.
The total premiums of the assigned risk pool has increased dramatically along with the number of employers in the pool.
The volume of the assigned risk plan has grown significantly higher each year. As this volume has increased, so has the cost to companies writing voluntary workers"" compensation. This transfer of assets cannot be expected to continue indefinitely.
Companies knowing that every dollar of writings in the voluntary market creates significant liabilities and seeing no possibility of relief, are reluctant to write compensation insurance in Louisiana voluntarily. Companies not writing workers"" compensation are not subject to an assessment, but if no company elects to write a workers"" compensation policy where there will be no one to assess. What becomes of the assigned risk plan then? See Louisiana Workers"" Compensation Review, prepared by Independent Insurance Agents of Louisiana.
The situation in Louisiana is not unusual. In many other states, such as Florida and Texas, assigned risk plans in recent years have also operated at a loss.
In addition, workers"" compensation has what is known in the industry as a long xe2x80x9ctail.xe2x80x9d That is to say, whereas most different claims in books of insurance business, because of the nature of the product, can be closed after a few years, it takes many more years (some estimate 12-15 years) to close out the average workers"" compensation book and claims related thereto. As early workers"" compensation insurance carriers began increasing their rates because past claims were rising at an unexpected rate, state legislatures defined more accurately and fully the benefits to be paid to an injured worker in those states. As a result of liberal interpretations under old laws and newer laws that offer greater benefits, workers"" compensation rates have risen dramatically.
3. Self-Insurance
Self-insurance as a way for funding a workers"" compensation obligation is not permitted in the United States in only 3 states (North Dakota, Texas, and Wyoming.) Self-insurance is a provision of law that allows qualifying associations of employers or individual employers, if they have substantial resources, to insure themselves against their workers"" compensation and employers liability obligations instead of paying to transfer that risk to an insurance company. Self-insurance can be classified as either group self-insurance or individual self-insurance. The 47 states allowing self-insurance have enacted different laws regulating whether individual and/or group self-insurance is allowed and who may self insure. For example, in Maryland, eligibility for group insurance is limited to counties, municipalities, and certain private employers. In Nebraska, group self-insurance is permitted for any two or more public agencies. (However, the discussion of group self-insurance herein shall be limited to the private sector.) Generally, group self-insurance is regulated by that state""s Department of Labor or that state""s Industrial Commission.
In those states where group self-insurance is allowed for the private sector, the laws are generally structured to provide for bona fide groups, such as trade associations with a minimum number of members and with a minimum net worth. Because there is a group insuring the risk, the law in some states requires each member be jointly and severally liable for all the risks underwritten by that group. So, for example, in the event that two of five members in a group declare bankruptcy, the remaining three members are liable for all the medical costs, disability costs, and all other workers"" compensation costs of those two bankrupt employers"" employees. Because such an event could jeopardize the solvency of the remaining three employers, some states require the members to only be liable for their pro rata portion of the risk.
In group self-insurance, a third party administrator manges a trust sponsored by the group (e.g., a trade association). The self insured employers pay their premiums to the trust xe2x80x9cpoolxe2x80x9d along with the other members from which losses are paid as they occur. After sufficient time has elapsed to pay claims, the excess money (premiums) or profits of the pool may be distributed to qualifying employers who helped generate them by maintaining low losses.
Generally, group self-insurance is promoted by insurance agencies or consulting companies who get a trade association such as restaurant owners, retail shop owners, contractors, etc., to offer workers"" compensation through a trust to members of the association, the insurance agency, or a self-insurance trust. xe2x80x9cAdministratorsxe2x80x9d then enter into a contractual arrangement of up to 30% of collected monies to: (1) administrate the trust; (2) collect premiums; (3) do adjustment claims by hiring adjustors and lawyers and charging the resulting costs back to the group, and (4) generally do all other things an insurance company would do in the resolution of claims.
The obvious disadvantages of group self-insurance are: (1) generally, all members of the group are individually liable, or are at least pro rata liable, for all of the group""s workers"" compensation bills, if the trust is a non profit trust; (2) the group is generally not protected in the event of insolvency by state guaranty funds; (3) many groups either have no employers liability policy or have minimum limits for bodily injury by accidents or disease, with a $500,000-policy limit; and (4) this is not a fully insured plan that is backed by an insurance company which, in turn, is backed by a guarantee fund.
Often in group self-insurance, if reinsurance for the group is sought, it is in the form of an excess workers"" compensation policy.
The other way an employer can meet the statutory workers"" compensation obligation is by being individually self insured. State laws generally require that the employer choosing this option post a bond or have a surety guaranteeing the empolyers"" net worth. Also, many times the individual must have a large net worth, for example, $500,000. In response to an application to the state by an individual desiring to be self-insured, if the individual has met statutory requirements, the state will allow that individual to be a xe2x80x9cQualified Self Insurer of Workers"" Compensation Benefits.xe2x80x9d Many employers, after having been qualified to become a self insurer, obtain an excess workers"" compensation policy with the employer having a large self insured retention.
The disadvantages of individual self insured programs include the following: (1) control of claims remains in the hands of the employer that is not experienced in adjusting and litigating workers"" compensation claims; (2) not every employer can meet the requirements to be individually self-insured due to the minimum requirements for the employer""s number of employees or financial net worth; (3) employers liability is excluded if no stand alone employers liability policy is purchased, so that there is no coverage to the employer for: (a) damages for which the employer is liable to a third person by reason of a claim against the employer to recover damages against that third party as a result of an injury to an employee of the insured; (b) damages for care and loss of services of an employee of the insured; or (c) damages for consequential bodily injury to a spouse, child, parent, brother, sister of an injured employee of the insured. The employer under individual self-insurance must self insure all of 3-(a), (b), and (c) items, as well as workers"" compensation obligation to employees up to a maximum self insured retention. Still another disadvantage of self-insurance is (4) that if the employer becomes insolvent, there is no state guaranty fund to pay the injured employees medical bills, disability, or other compensation due him.
4. Twenty-Four Hour Coverage
One way different insurance companies have approached solving the workers"" compensation obligation is through the use of policies of insurance known as xe2x80x9cTwenty-Four Hour Coverage.xe2x80x9d Under this coverage approach, there appears to be six basic sub-types of coverages.
The first type of coverage is known as a xe2x80x9cTwenty-four Hour Coverage Marketing Product.xe2x80x9d This product is marketed by several multi-line insurers that offer xe2x80x9cintegratedxe2x80x9d management of a client""s workers"" compensation and group health insurance claims. Most state laws preclude combining the benefits available under workers"" compensation with those available under other employee benefit plans, so integration is limited to coordinated claims management and/or utilization of the group health discounted provider rates for workers"" compensation claims. The policies remain separated and any differences in benefits and coverage between the policies are retained.
A second type of coverage is Twenty-Four Hour Disability Coverage. Such coverage provides disability benefits for all of an employee""s injuries and diseases. But under this type, medical benefits are provided only for work-related injuries and diseases.
A third type of coverage is Twenty-Four Hour Coverage of Accidents (Injuries). Under this insurance product, medical and disability benefits are provided for all accidental injuries, but only work-related diseases are covered.
A fourth type of coverage is Twenty-Four Hour Coverage of Diseases. Such coverage provides medical and disability benefits for all diseases. However, only work- related injuries are covered.
Twenty-Four Hour Medical and Disability Coverage (Universal Disability Program) is a fifth type of coverage. This all-inclusive design provides medical and disability benefits for all diseases and injuries. See generally Issues in Insurance. 
There is obvious evidence of a renewal of interest in Twenty-Four Hour Coverage. New interest and activity in 1990 include:
1) The new Florida""s workers"" compensation law allowing employers to obtain a xe2x80x9cTwenty-Four Hour health insurance policyxe2x80x9d and a xe2x80x9cpolicy providing indemnity benefitsxe2x80x9d to satisfy the state""s workers"" compensation requirements (HB 3809);
2) The California Senate Industrial Relations Committee Report, Healthy Worker-Healthy Workplace: The Productivity Connection, which recommended integrating workers"" compensation, disability and group health insurance into a new mandated state-run insurance program.
3) Alaska""s recent creation of a Universal Health Care Task Force to consider the option of combining the worker"" compensation system with a universal health care program in order to design either a single comprehensive state-wide system or an integrated system of existing health care coverage as delivery systems for a universal health care program (HB 581);
4) Oregon""s Legislative Task Force on innovation in Workers"" Compensation Insurance, which is to include consideration on the xe2x80x9cfeasibility of developing mandatory occupational personal injury protection insurance coveragexe2x80x9d and coordinating that coverage with xe2x80x9cthe mandatory provision of health insurancexe2x80x9d (SB 1198) along with the Oregon governor-elect calling for combining employees"" health insurance coverage with workers"" compensation; and
5) Minnesota""s report on xe2x80x9cHealth Care Costs and Cost Containment in Minnesota Workers"" Compensationxe2x80x9d issued in March by the Department of Labor and Industry which discussed four Twenty-Four Hour Coverage options, including either mandatory or optional Twenty-Four Hour medical coverage for back disorders only, and Twenty-Four Hour medical and disability coverage for all of an employee""s injuries and diseases.
Issues in Insurance.
It appears that since the 1980""s, several insurers have marketed xe2x80x9cTwenty Four Hour Coveragexe2x80x9d policies. These policies were advocated as costs savers because of (1) coordinating the claims of non-occupational coverage with occupational (workers"" compensation) claims, and (2) using managed care programs of their group health plans (HMO""s, PPO""s, etc) to reduce medical costs in occupational coverage. Designs of these products include that of CIGNA""s xe2x80x9cTwenty Four Hour Coverage +xe2x80x9d Product, which focuses solely on cost savings through coordinated claims administration. xe2x80x9cBack-Endxe2x80x9d coordination is used to cross check their workers"" compensation and group health claims to eliminate double dipping and fraudulent claims. The designs also include that of Consolidated Health Care, which used front end coordination as a cost containment strategy along with back end coordination. Front end coordination involved requiring the provider to identify a claim as work related or not and then using the services of a utilization review along with Blue Cross/Blue Shield medical provider discounts.
Also, CNA and United Heart Land (an AON and Wisconsin Blues Joint venture) began in 1990 to offer Twenty-Four Hour Coverage. CNA uses its group health insurance PPO networks and utilization review for its workers"" compensation clients. CNA currently markets its product in Indianapolis, Kansas City, and St. Louis. Issues in Insurance. 
There have been other insurers who have entered and then left this market: (Blue Cross/Blue Shield of South Carolina with Companion Property and Casualty), thereby raising questions about the profitability of this approach. Those companies who have exited the Twenty-Four Hour Coverage cited among others the reasons for withdrawing the product: (1) Marketing Problemsxe2x80x94(A) potential clients have a different risk factor to accident and health insurers than they do to workers, compensation insurers, (B) for large employers, workers"" compensation is purchased by risk managers or financial officers, while accident and health insurance is purchased by employee benefit or personnel managers, and (C) because of the differences in workers"" compensation and accident and health insurance, even multi-line insurers used two different sellers; (2) Administration Problemsxe2x80x94include (A) rating differencesxe2x80x94workers"" compensation rates are heavily regulated, while group health rates are less regulated, (B) premiums for the two products are calculated and paid differently. Group health premiums are generally determined by the number of employees based upon a monthly payroll census and are paid on a monthly basis, but workers"" compensation premium rates are often paid quarterly and are based upon payroll classification codes for employees in each industry and/or an employer""s loss experience, and (C) health care insurers gather detailed medical information for care management, while workers"" compensation carriers gather actual loss information for rate making purposes. Accordingly, there is a lack of comparable historical medical claim information by health carriers needed to control medical costs. Issues in insurance. 
Overall roadblocks to Twenty-Four Hour Coverage include: (1) new legislation required authorizing the merger of occupational and non-occupational coverages; (2) the federal Employee Retirement Income Security Act (ERISA) preempts most state regulation of employee benefit plans, such as group health insurance, and preempts even indirect regulation of most benefit plans through state workers"" compensation statutes; (3) maintenance of the xe2x80x9cexclusive remedyxe2x80x9d doctrine worker"" compensation laws, which could be threatened by new Twenty-Four Hour Coverage legislation not specifically including it; (4) significant benefit and coverage differences between workers"" compensation and other public and private plans (for example, workers"" compensation benefits do not have deductibles and co-pay requirements; health insurance policies frequently have richer medical benefit levels than those provided under workers"" compensation laws; (5) administrative difficulties imposed by requirements for separate occupational and non-occupational data and operational functions because of federal and state statutory and regulatory requirements, (6) lack of a stand alone employers liability policy sold in conjunction with the Twenty-Four Hour policy (an employer must self insure an employers liability exposure without such a policy); and (7) in those states where workers compensation laws prohibit any employer choice of physician, packages using large volume discount providers (HMO""a, PPO""s) cannot be offered for group health and workers compensation medical claims.
Because of the multiple definitions of Twenty-Four Hour Coverage, there has been a wide variety of approaches in the marketplace. An insurer may have variations in the latitude of illness and injuries covered, the benefits provided in its relationship with the employer existing workers"" compensation plan. This allows plans to be developed to: (1) retain a workers, compensation plan and then provide a Twenty-Four Hour alternative to existing coverage; (2) take out some of the workers, compensation benefits or coverage and shift the carved out benefits or coverages to a Twenty-Four Hour system; or (3) place occupational injuries or diseases in a new, larger statutory scheme.
5. ERISA
A rapidly developing area of the law that enables an employer to satisfy benefits to injured employees for medical disabilities and other occupational injuries is the use of an employee benefit plan authorized under ERISA, the Employee Retirement Income Security Act enacted the federal law in 1974. ERISA not only applies to pension programs, but to other employee benefit plans as well (see 29 U.S.C. xc2xa7xc2xa7 1001-1461). Specifically included within the scope of ERISA are plans providing medical, surgical, and hospital care benefits or benefits in the event of sickness, accident, disability, or death. ERISA was intended to substitute a federal regulatory scheme for the then existing state regulations and the weak federal statutes then in place.
ERISA specifically preempts xe2x80x9cany and all state laws insofar as they may not or hereafter relate to any employee benefit planxe2x80x9d except certain employee benefit plans specifically exempted for the ERISA Act. The most important exemption in the context of this discussion is the one found in 29 U.S.C. xc2xa7 1003(b)(3) for plans xe2x80x9cmaintained solely for the purpose of complying with applicable workers"" compensation laws or unemployment compensation laws or disability insurance lawsxe2x80x9d (emphasis added).
On May 18, 1981, the Supreme Court unanimously affirmed the decision of the Third Circuit in Buczynski v. General Motors Corp., 616 F.2d 1238 (1980) sub mon Alessi v. Ray Bestos Manhattan, Inc., 451 U.S. 504, May 18, 1981. In so doing, the court resolved the issue of the right of employers to integrate pension plan benefits with state workers"" compensation benefits by reducing the one by the other. The Supreme Court made it clear that qualified plan benefits may be offset by workers"" compensation benefits and that state law to the contrary is preempted by ERISA. Absent congressional action, there is no longer any questions that workers"" compensation integration is lawful under ERISA. Since Alessi other court cases have aided in the interpretation of Alessi in this expanding area of the law, for example: Shaw v. Delta Air Lines. Inc., 463 U.S. 85, 77 L. Ed. 2d 490.103 S. Ct. 2890 (1983); see also Gibbs v. Service Lloyds Insurance Co. 711 F. Supp. 874 (E.D. Texas, 1989); Foust v. City, Ins. Company, 704 F. Supp. 752 (W.D. Texas, 1989); Stone and Webster Engineering v. Ilsley, 690 F.2d 323 (2d Cir. 1982), aff""d, 463 U.S. 1220 (1983); and Fixx v. United Mine Workers"", District 17, 645 F. Supp. 352 (S.D. W.Va. 1986).
Gibbs, held that a plan is not a workers"" compensation plan merely because it""s benefits are similar to workers"" compensation benefits. Moreover, an employee benefits plan cannot be both a workers"" compensation plan and a ERISA plan.
Legal efforts to avoid the ERISA preemption and to avoid removal to federal court are often centered on arguments that negligence or pain and suffering are not contemplated by the employee benefit plan. To that argument the Supreme Court recently explained:
xe2x80x83xe2x80x9c[a] Saw xe2x80x98relates toxe2x80x99 an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan . . . Under this xe2x80x9cbroad common sense meaning,xe2x80x9d a state law may xe2x80x9crelate to xe2x80x9d a benefit plan, and thereby be preempted even if the law is not specifically designed to affect such plans, or the effect is only indirect.
Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 136 (1990), quoting Shaw v. Delta Air Lines, Inc. 463 U.S. 85, 96 (1985), and Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47 (1987).
If federal law preempts the state law, the plaintiff""s lose state court remedies such as penalties, unfair trade practices remedies, attorney""s fees, and other state court remedies.
All of this having been said, there are obvious setbacks to maintaining that ERISA is a broad scale answer to the workers"" compensation dilemma in the United States. The current disadvantages of this use of ERISA are set forth below.
(1) Localxe2x80x94Because ERISA is a relatively new statute with few cases interpreting the statute, the law as to how to use ERISA to fund the workers"" compensation obligation is unclear in many areas. Additionally, an ERISA plan under 29 U.S.C. xc2xa7 1003(b)(3) not maintained solely for the purpose of complying with workers"" compensation law would be subject to ERISA and state law would be preempted.
(2) Marketingxe2x80x94(a) ERISA Employee Benefit Plans, because of their highly legal technical requirements, generally only allow a large employer that pays a high workers"" compensation premium to be cost effective in designing an ERISA plan; (b) most employee benefit plans require the employee to pay a portion of the premiums, but in workers"" compensation, the employer pays the entire premium; (c) only workers"" compensation policies offer employer liability coverage (so in an ERISA plan, the employer could self insure the employers liability portion, absent combining the plan with a stand alone employers liability policy; and (d) worker""s compensation in certain circumstances covers pre-existing conditions while group health plans do not.
D. Summary of the Prior Art
Prior to the financial innovation that underlies the present invention, it is believed that despite the above-mentioned problems in the history of workers, compensation and employers liability, this mode of insurance has been provided by means of a standard workers"" compensation policy. A standard workers"" compensation policy has been a unitary policy covering worker"" compensation and employers liability. This policy is sold by one company charging based on one insurance premium for both coverages.
A. An Innovative Financial Product
In contrast, the present invention is based on the discovery that it is advantageous to unbundle a standard workers"" compensation policy into a new financial product having at least two separate, coordinated policies. The new financial product involves using one policy to insure the workers"" compensation obligation (Part A of a standard workers"" compensation policy), and a second policy, to insure against the employers liability exposure (Part 8 of a standard workers"" compensation policy). The first policy can be issued by a life, accident, or health insurance company, and the second policy can be issued by a property and casualty company. This new way of funding a workers, compensation obligation and employers liability exposure on a fully insured basis uses a method of coordinating the coverages under different insurance policies and/or companies using a computerized rating system that is the subject of the present invention.
By severing a standard workers"" compensation policy into two parts, many price benefits can be obtained. For example, because a life, accident, and health insurance company would not be considered a workers"" compensation insurer and a member of the NCCI, the carrier would not be forced to participate in assignments from the state assigned risk pools; nor would it be forced to assessments by the state plans administered by the NCCI. A property and casualty carrier who is not a member, purchaser, or subscriber of the NCCI and whose charter does not allow it to write workers"" compensation insurance in some states, can be used to insure one part of this plan. These savings by the insurance carriers can be passed on to the employer consumer in a reduction of the price of the combination of the two insurance products.
Additionally, in certain states, when the employer is in the assigned risk pool, many times there is a surcharge based upon a percentage of premium added to the price of the standard workers"" compensation premium. By taking that employer out of the assigned risk pool, that employer faces no surcharge, thus decreasing again the workers"" compensation insurance cost. Depopulating the assigned risk pool is a goal of most commissioners and insurance regulators, and an object of the present invention is to help accomplish that goal.
Presently, it appears that using this combination of policies may be permissible in 15 states. These states appear to be Alabama, Connecticut, Florida, Georgia, Illinois, Iowa, Missouri, Oklahoma, Rhode Island, South Dakota, Utah, West Virginia, Louisiana, Minnesota, and Wisconsin. Two others, Michigan and Oregon, permit the use of equivalent benefits by certain limited categories of employer. But, each of the states needs to be analyzed on a case-by-case basis with regard to whether its insurance denartment""s interpretation of the workers"" compensation law permits equivalents.
It is important to note that the states mentioned in the preceding paragraph do not require the insurance company issuing the workers"" compensation benefits to have its license specifically authorize the company to write workers"" compensation insurance. That is, a life, accident, and health carrier does not need to amend its charter to sell health insurance that constitutes the equivalent to the workers"" compensation benefits coverage.
In order to insure that there are no gaps in coverage arising from the separation of the workers"" compensation exposure from the employers liability exposure, the policies are issued simultaneously to an employer. Additionally, the part A policy has a difference in coverage/condition (xe2x80x9cDICxe2x80x9d) wording which, in essence, provides that if there are any differences between the terms and conditions of the policy and that which would be paid under that state""s workers"" compensation statute then the policy is to provide that coverage. Additionally, the part A policy has a xe2x80x9cconformity to a standard workers"" compensation policyxe2x80x9d clause, which provides that if the terms and conditions of this policy would be different than that provided by a standard workers"" compensation policy, then the policy is amended to provide for the same coverage, minimum terms, and conditions of that standard workers"" compensation policy. To protect the carriers, if one of the policies is cancelled or lapsed, then the other is cancelled. According to each state""s interpretation, the part B coverage can have a conformity to a standard employers liability policy clause which provides that if the terms and conditions of this policy would be different than that provided by the standard workers"" compensation with the employers liability insurance contained therein) then this policy is amended to provide for the same coverage minimum terms and conditions of that standard employers liability coverage contained in the standard workers"" compensation policy.
As noted earlier, Part A of a standard workers"" compensation policy does not outline the benefits it will pay under that state law. Under the financial product associated with the present invention, all of the benefits of a particular state""s workers"" compensation law are preferably put into the terms and conditions of the policy, including medical, disability, death, burial, and other statutory benefits.
An advantage of using a life, accident, and health insurance company is that these carriers have massive data and experience in managing group medical bills or disability costs. These companies have years of experience with cost containment in these areas. These carriers already have existing networks of doctors and hospitals utilized, including HMO""s and PPO""s, thereby reducing medical costs by being able to analyze the cost of the services performed. (Nationwide, 43% of all workers"" compensation cost has been medically related.)
Another advantage of using a life, accident, and health carrier is that the cost to that carrier for its re-insurance is less expensive than traditional workers"" compensation insurance.
Still another major advantage of the underlying financial innovation involves its acceptability by the property and casualty insurance agents. Part B of the coverage utilizes xe2x80x9cNamed Peril Employers Liabilityxe2x80x9d rating codes and classifications, which are already used by property and casualty agents. By then cross-referencing those codes with new codes under the same classification for the other policy (the Employer""s Death, Disability, Medical, Burial Policy for job related injuries or a Special Employers Liability Policy) a coverage risk is then rated.
Property and casualty agents first must feel comfortable that there are gaps in coverage in order to market this plan. Additionally, in order to place their client employer with a company on a fully insured basis, the carriers must be quality A. M. Best-rated carriers. By using B+-Rated carriers or better, property and casualty agents have less exposure for claims made against their errors and omissions insurance. Another aspect from a property and casualty agent""s perspective is that an agent typically sells workers"" compensation insurance and employers other liability coverage (e.g., commercial automobile general liability, etc.). Often times the employer must have an xe2x80x9cumbrellaxe2x80x9d (comprehensive) policy to cover against catastrophic losses. An umbrella policy generally requires high limits with quality A. M. Best-Rated carriers. The financial innovation underlying the present invention accomplishes all these needs.
One major impediment in the past for accident and health carriers to enter the accident and occupational insurance market has been the difficulty or determining an adequate rate. The integration achieved by this rating system, particularly in a computerized form, enables accident and health carriers to determine an adequate rate for the risk. This financial innovation may be a major stepping stone to the ultimate development of a Twenty-Four Hour insurance policy which will have adequate rates for both occupational and non-occupational injuries and illnesses.
Yet another advantage of the underlying financial product of the present invention is that it is a fully insured plan. In those states where this plan will be admitted not under an assessable mutual plan or a group self-insurance plan, the employer will have first dollar coverage by A. M. Best-rated carriers.
Employers liability insurance is an essential and indispensable protection required by employers. It covers the cost of legal defense and provides coverage against intentional injury claims, dual capacity claims, and third party over claims. While the majority of states still hold that workers"" compensation benefits are the exclusive remedy an injured employee has against his employer, employers liability coverage is required to insure in the above-mentioned situations. Employers liability being a part of the combined financial product gives an advantage in marketing over most individual and group self insured plans, Twenty-Four Hour Coverage plans, and ERISA trust plans. The employers liability policy is issued on a separate basis, where it can be sold either on an admitted basis or on a surplus lines basis, according to that state""s law. If sold on an admitted basis, that state""s guarantee fund for that liability policy is provided. If sold on a surplus lines basis, no guarantee fund protection is available. However, this is mitigated by using quality (B+-rated or better) carriers, and by taking into consideration employers liability claims are few and far between.
Pricing, being one of the most important factors in any marketing plan, is a major advantage of the financial product underlying the present invention. In those states which are not monopolistic and in which the NCCI suggests adequate rates for workers"" compensation and which have assigned risk pool assessments or assignments or surcharges for employers in the assigned risk pool, this financial innovation may save an employer up to twenty (20%) percent of the premium compared to a standard workers"" compensation policy, yet there still is full statutory coverage with quality carriers. In those states which allow the use of HMO""s or PPO""s, the savings may be greater.
Further, with regard to the understanding that the employer is in all plans the ultimate responsible party to provide workers"" compensation benefits to injured employees in the xe2x80x9ccompulsory states,xe2x80x9d the severing of Part A and Part B to a standard workers"" compensation policy gives the least exposure to the employer. Under state law, the insurance company is liable to the injured employee. If the insurance company should fail, then the state guarantee fund becomes liable. Then, if the guarantee fund should not pay, the employer must do so. Contrast this with group self-insurance or assessable mutuals, where first the premium pool pays, and, if it becomes insolvent, then all member employers are jointly and severally liable or pro rata liable for all other members"" workers"" compensation obligation to its injured employees (in those majority of states that do not have guarantee funds or group insurance). In individual self-insurance, the individual employer already pays first dollar up to a retention limit, then the excess insurance begins to pay. In ERISA plans, depending on the structure of the plan, and in Twenty-Four Hour Coverage plans, depending on the states various laws, it is difficult to legally determine if guaranty funds would have to legally be obligated to pay in the event of insolvency of participating insurance carriers.
With regard to the reporting of the statistical data on losses and rates, the states allowing the financial product underlying this invention may instruct a carrier or its designee to report to either the state workers"" compensation board, the department of insurance, or the NCCI to track the experience modification (loss history) sustained by each individual employer.
B. A Computerized Rating System
To support this innovative financial product, a computerized rating system and method have been invented. The computer system includes a digital computer having a keyboard, a monitor, a printer, and memory storing a computer program and data. The digital computer can call up the computer program and be controlled by the computer program. (Although it is believed that the computer program could equivalently be implemented in whole or in part in hardware, a software embodiment is believed to be preferable.)
By means of the computer program, the computer computes one rate for a workers"" compensation benefits policy and a second rate for an employers liability policy, the policies being coordinated to provide coherent, uniform coverage such as that provided by a standard workers"" compensation policy information input at the keyboard to permit computing one of the rates is automatically used to permit computing the other rate. This information is also automatically used to complete or partially complete pre-designed application forms and other documentation printed for the two policies. The computer system also permits printing an illustration comparing the price for a standard workers"" compensation policy versus the price for the innovative financial product underlying the present invention. Other documentation is also automatically prepared.